Those of you who have been following the foreclosure crisis since the beginning
may recall that the Office of the Comptroller of the Currency entered
into a settlement with 14 mortgage servicers. As part of this settlement,
the servicers were to conduct a review of their foreclosure files -- by
hiring independent auditors -- to make a determination as to whether mistakes
had been made. As a result of this audit, eligible homeowners were to
receive some sort of compensation for the wrongdoing of the various servicers.
Many observers (myself included) did not hold out much hope for this program.
The auditors were being hired by the banks. The compensation was likely
to be minimal. The audits wouldn't look at the right factors. There
were many issues to be nitpicked.
Well, thanks to the GMAC/Res Cap Chapter 11 bankruptcy, it turns out that
we now have conclusive proof that someone is actually benefitting from
the Independent Foreclosure Review. In fact, those who are benefitting
are making out like proverbial bandits. So who are these blessed few?
ResCap has stated in court filings that it expects to pay $12,500 per file
to have 20,000 files reviewed. The total bill to PricewaterhouseCoopers?
A cool quarter-billion dollars. That's billion, with a "b."
$250,000,000 if you want to reduce it to numerals.
An audit that costly must be resulting in some hefty payouts to consumers,
right? Wrong. ResCap expects to pay between $35 million and $60 million
to consumers. Quite simply, this audit is nothing more than a big payday
for the auditors.
It is also worth asking whether these audits will uncover any truths along
the way. The companies being hired to review the foreclosure files are
financial services consulting companies -- they have a major disincentive
when it comes to rooting out the problems because they cannot afford to
risk angering their customer base.
This American Banker article raises even more questions about the legitimacy of this Independent Foreclosure
Review. According to some unnamed Bank of America employees, the majority
of the work done on BofA's file review was done by BofA employees,
not employees of the auditor that BofA hired.
If those statements are true, then this is a major issue. A truly independent
review would be conducted off-premises with no bank employee involvement.
Having BofA employees intimately involved in the process leaves too much
room for shenanigans, including the filtering-out of documents that would
otherwise demonstrate wrongdoing.
At the end of the day, it would apppear that this Independent Foreclosure
Review is nothing more than a big payday for financial services consulting
firms -- which is about par for the course when you consider the entirety
of the bubble, bust, and foreclosure crisis that's been taking place
since the early Aughts.